The government is offering up a 20-25% exemption from corporation tax for the performing arts folk. The only trouble is, performing arts folk don't pay corporation tax.
Thursday, 10 April, 2014
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The budget delivered by the Chancellor of the Exchequer is often a snooze for arts folk unless they are expecting arts cuts, the norm for the last few years.
However, this time out there was, allegedly, some good news for the creatives when George Osbourne announced some tax breaks for both touring and non-touring theatrical productions, subsidised by Arts Council England or not.
According to ACE the tax relief;
"... applies to both commercial and subsidised productions and will include theatre, ballet, dance and opera, musicals and other live performance. The Chancellor announced two rates of relief; 25% for touring productions and 20% for all other productions."
So, does this mean that making your show just got 20% cheaper? Not so fast there skippy because this is tax law and nothing is ever simple when it comes to tax law.
ACE's own description of how this works requires more tax law expertise then most mere mortals can muster;
"The calculation of this is as a percentage of eligible capitalised expenditure (broadly one takes the capitalisation of the project, and the eligible portion comprises most categories excluding marketing and advertising, running costs, contingencies and any finance costs). The tax relief is then applied to 80% of this eligible expenditure. The mechanism for claiming the relief will be covered in the forthcoming consultation."
Strictly speaking, if you have the administrative moxie to pull it off, then you could save some money on your new show. The problems begin because the relief is applied to corporation tax and almost every subsidised company in the UK is a registered charity, not a corporation, so they don't pay any corporation tax.
The funding monolith has a plan though saying, via their press release on this scheme, that;
"The majority of theatre companies that receive funding from Arts Council England are charities and are not usually liable for corporation tax. It is envisaged that in order to benefit from the tax relief a charity will create a trading subsidiary that is liable for corporation tax through which it will make the production and benefit from any relief."
Basically what you do, if you're a mid-scale dance company, is set-up up what amounts to a phoney corporation so you can then become liable for a tax you never had to pay in the first place so you can get relief from said tax.
Larger companies with sufficient expertise on hand and the money to pay for it may find setting up dummy corporations very easy but most people and most companies probably won't be so lucky.
Should this scheme actually bring in more money that it costs to set up then you are good to go but to us, here in TheLab™, it all sounds an awful lot like the kind of tax avoidance schemes being used by massive corporations like Apple, Google and Amazon.
Schemes which these companies have been hauled before government committees for using and schemes that are blamed, in part, for causing a lot of the massive budget cuts currently being endured across this country and beyond.
We suppose that the motto "if you can't beat them join them" was ringing in the ears of both ACE and the DCMS when they heard about these shell corporation shenanigans.
There is also the rather sticky issue of the financial problems being faced by many arts organisation actually being caused by the very government that is pretending to hand them some tax relief.
The powers that be have taken what was a very simple system (sort of) by providing funding to ACE who then fund arts organisations and turned it into cutting direct funding to the bone and adding in a huge layer of bureaucratic paper shuffling to create corporate tax liable entities that may or may not save you less money than they took away in the first place.
It would almost certainly have been far simpler to allow registered charities working in the performing arts to simply claim an exemption from VAT, which in the UK is set at 20%.
It is still to be made clear what happens to charitable organisations working in the arts that set up these "trading subsidiaries" only to find some rule change or bureaucratic red tape means they are not eligible for the "tax relief".
When that happens would they then become liable for large amounts of corporation tax? We would ask ACE, the DCMS or The Treasury but we already know what they are going to say... "we don't know!"
Such tax relief schemes will, in all probability, only benefit the large scale. Small and mid-scale will probably look at this and figure it's not worth the effort and the expense of setting it up even if they could save a bit of money with it.
It is all the very weakest of sauce.